October 27, 2011 – The shadow economy in Europe is estimated to be €2.2 trillion in 2011 - this is 5% higher than the €2.1 trillion in 2010. An increase in electronic payments by 10 percent, can lead to a decline in the size of the shadow economy by up to 5 percent, according to a new Visa Europe report.

With the size of the shadow economy expected to increase in 2011 and governments under increasing pressure as slow growth and high unemployment impact their fiscal budgets, combative measures are being considered to address the problem effectively.

While most countries focus on curtailing undeclared work and creating credible laws and penalties, indirect measures are considered some of the most powerful to reduce the size of the shadow economy. “In any economy, governments are primarily the largest initiators and recipients of payments. As such, governments can serve as role models in promoting the use of electronic payments,” said Davide Steffanini, General Manager for Italy, Visa Europe.

“In a number of government-led efforts, Italy has defined sanctions and enforced rigorous controls to foster the use of electronic payments to help combat the shadow economy”, said Davide Steffanini, “including the Finanziaria 2010, a regulation which has made electronic payments mandatory for transactions of more than €5,000, but a lot more could be done to further reduce the extensive use/misuse of cash in Italy.”

Effective measures are emerging across Europe to help tackle the shadow economy. From the Czech Republic’s model of reduced VAT rates for maintenance and repairs in private households, to the “mini-jobs” reform introduced in Germany to simplify red tape and taxes to encourage lower-wage workers to join the official economy, Europe seems to be waking up to the ways that electronic payments can combat the shadow economy.

Download the full report here – “The Shadow Economy in Europe”